THE DOT - if this turns orange or red be alert

Friday, July 31, 2009

In the article below we hear part of the truth but the fact that Goldman commands many of the regulators top posts as they are former Goldman's from The NY FED governor to the chief of stuff from Geithner to many other posts like the CEO of the NYSE. They create profits backed and secured by Taxpayers money, backstop and insider information from the government. The evil part is rather since they execute for the famous PPT entity they even work in sink with the government which is for now very happy about the upside market manipulation since it is meant to turn around the sentiment of consumers. Only if the Titanic sinks it does not matter how upbeat the passengers might get temporarily on false claims of the captain.

July 28, 2009 -- This is perhaps the most important thing I learned over my years working on Wall Street, including as a managing director at Goldman Sachs: Numbers lie. In a normal time, the fact that the numbers generated by the nation's biggest banks can't be trusted might not matter very much to the rest of us. But since the record bank profits we're now hearing about are essentially created by massive federal funding, perhaps it behooves us to dig beneath their data. On July 27, 10 congressmen, led by Rep. Alan Grayson (D-Fla.), did just that, writing a letter to Federal Reserve Chairman Ben Bernanke questioning the Fed's role in Goldman's rapid return to the top of Wall Street.

To understand this particular giveaway, look back to September 21, 2008. It was a frenzied night for Goldman Sachs and the only other remaining major investment bank, Morgan Stanley. Their three main competitors were gone. Bear Stearns had been taken over by JPMorgan Chase in March, 2008, Lehman Brothers had just declared bankruptcy due to lack of capital, and Bank of America had been pushed to acquire Merrill Lynch because the firm didn't have enough cash to survive on its own. Anxious to avoid a similar fate, hat in hand, they came to the Fed for access to desperately needed capital. All they had to do was become bank holding companies to get it. So, without so much as clearing the standard five-day antitrust waiting period for such a change, the Fed granted their wish.

Bank holding companies (which all the biggest financial firms now are) come under the regulatory purview of the Fed, the Office of the Comptroller of the Currency, and the FDIC. The capital they keep in reserve in case of emergency (like, say, toxic assets hemorrhaging on their books, or credit derivatives trades not being paid) is supposed to be greater than investment banks'. That's the trade-off. You get access to federal assistance, you pony up more capital, and you take less risk.

Goldman didn't like the last part. It makes most of its money speculating, or trading. So it asked the Fed to be exempt from what's called the Market Risk Rules that bank holding companies adhere to when computing their risk.

Keep in mind that by virtue of becoming a bank holding company, Goldman received a total of $63.6 billion in federal subsidies (that we know about—probably more if the Fed were ever forced to disclose its $7.6 trillion of borrower details). There was the $10 billion it got from TARP (which it repaid), the $12.9 billion it grabbed from AIG's spoils—even though Goldman had stated beforehand that it was protected from losses incurred by AIG's free fall, and if that were the case, would not have needed that money, let alone deserved it. Then, there's the $29.7 billion it's used so far out of the $35 billion it has available, backed by the FDIC's Temporary Liquidity Guarantee Program, and finally, there's the $11 billion available under the Fed's Commercial Paper Funding Facility.

Tactically, after bagging this bounty, Goldman asked the Fed, its new regulator, if it could use its old risk model to determine capital reserves. It wanted to use the model that its old investment bank regulator, the SEC, was fine with, called VaR, or value at risk. VaR pretty much allows banks to plug in their own parameters, and based on these, calculate how much risk they have, and thus how much capital they need to hold against it. VaR was the same lax SEC-approved risk model that investment banks such as Bear Stearns and Lehman Brothers used, with the aforementioned results.

On February 5, 2009, the Fed granted Goldman's request. This meant that not only was Goldman getting big federal subsidies, but also that it could keep betting big without saving aside as much capital as the other banks. Using VaR gave Goldman more leeway to, well, accentuate the positive. Yes, Goldman is a more risk-prone firm now than it was before it got to play with our money.

Which brings us back to these recent quarterly earnings. Goldman posted record profits of $3.4 billion on revenues of $13.76 billion. More than 78 precent of those revenues came from its most risky division, the one that requires the most capital to operate, Trading and Principal Investments. Of those, the Fixed Income, Currency and Commodities (FICC) area within that division brought in a record $6.8 billion in revenues. That's the division, by the way, that I worked in and that Lloyd Blankfein managed on his way up the Goldman totem pole. (It's also the division that would stand to gain the most if Waxman's cap-and-trade bill passes.)

Since Goldman is trading big with our money, why not also use it to pay big bonuses? It's not like there are any strings attached. For the first half of 2009, Goldman set aside $11.4 billion for compensation—34 percent more than for the first half of 2008, keeping them on target for a record bonus year—even though they still owe the federal government $53.6 billion, a sum more than four times that bonus amount.

But capital is still key. Capital is the lifeblood that pumps through a financial organization. You can't trade without it. As of June 26, 2009, Goldman's total capital was $254 billion, but that included $191 billion in unsecured long-term borrowing (meaning money it had borrowed without putting up any collateral for it). On November 28, 2008 (4Q 2008), it had only $168 billion in unsecured long-term borrowing. Thus, its long-term unsecured debt jumped 14 percent. Though Goldman doesn't disclose exactly where all this debt comes from, given the $23 billion jump, we can only wonder whether some of it has come from government subsidies or the Fed's secret facilities.

Not only that, by virtue of how it's set up, most of Goldman's unsecured funding comes in through its parent company, Group Inc. (Think the top point of an umbrella with each spoke being a subsidiary.) This parent parcels that money out to Goldman's subsidiaries, some of which are regulated, some of which aren't. This means that even though Goldman is supposed to be regulated by the Fed and other agencies, it has unregulated elements receiving unsecured funding—just like before the crisis, but with more of our money involved.

As for JPMorgan Chase, its profit of $2.7 billion was up 36 percent for the second quarter of 2009 vs. the same quarter last year, but a lot of that also came from trading revenues, meaning its speculative endeavors are driving its profits. Over on the consumer side, the firm had to set aside nearly $30 billion in reserve for credit-related losses. Riding on its trading laurels, when its consumer business is still in deterioration mode, is not a recipe for stability, no matter how much cheering JPMorgan Chase's results got from Wall Street. Betting is betting.

Let's pause for some reflection: The bank "stars" made most of their money on speculation, got nearly $124 billion in government guarantees and subsidies between them over the past year and a half, yet saw continued losses in the credit products most affected by consumer credit problems. Both are setting aside top-dollar bonuses. JPMorgan Chase CEO Jamie Dimon mentioned that he's concerned about attracting talent, a translation for wanting to pay investment bankers big bucks—because, after all, they suffered so terribly last year, and he needs to stay competitive with his friends at Goldman. This doesn't add up to a really healthy scenario. It's more like bad déjàvu.

As a recent New York Times article (and many other publications in different words) said, "For the most part, the worst of the financial crisis seems to be over." Sure, the crisis may appear to be over because the major banks of Wall Street are speculating well with government subsidies. But that's a dangerous conclusion. It doesn't mean that finance firms could thrive without the artificial, public-funded assistance. And it certainly doesn't mean that consumers are any better off than they were before the crisis emerged. It's just that they didn't get the same generous subsidies.

A dog is not considered a good dog because he is a good barker. A man is not considered a good man because he is a good talker.Buddha

No doubt who the White House is working for its definetely not Mainstreet

ExcerptU.S. Limits on Bank Pay, Bonuses Face Senate, Obama Skepticism

July 31 (Bloomberg) -- Restrictions on financial industry bonuses heading to a vote in the U.S. House may be rejected by the Senate and the Obama administration, which are reluctant to increase government’s role in deciding compensation.

The House, emboldened by New York Attorney General Andrew Cuomo’s report yesterday that showed nine banks getting U.S. aid paid $32.6 billion in bonuses last year, will probably pass a bill requiring regulators to ban pay practices that encourage “inappropriate risks.” A panel in the House, where Democrats hold a 256-178 advantage, approved it along party lines July 28.

The bill must pass the Senate and be signed by President Barack Obama to become law. White House press secretary Robert Gibbs, who hadn’t read Cuomo’s report, said yesterday the administration is concerned the measure may give regulators too much say on incentive pay. Michael Oxley, former chairman of the House Financial Services Committee, said senators are more likely to back the say-on-pay measure that gives investors a non-binding vote on compensation.

“It is difficult for me to believe that the Senate would be particularly interested in passing that version, despite the report,” Oxley, co-author of the Sarbanes-Oxley corporate governance law, said in an interview. “I don’t think it’s going to influence the Senate.”

AIG Outrage

The House in March passed a bill to set a 90 percent tax on bonuses at companies getting at least $5 billion in aid. The legislation, responding to public outrage over retention bonuses at American International Group Inc., died in the Senate after Obama said the U.S. shouldn’t “govern out of anger.”

Public outrage over Wall Street compensation reignited after Goldman Sachs Group Inc. set aside $11.4 billion for compensation and benefits for the first half of this year, a 33 percent rise from a year earlier and enough to pay every worker $386,429 for that period.

Cuomo analyzed 2008 bonuses at banks that received $175 billion in U.S. aid and found that 4,793 employees were paid more than $1 million in bonuses last year. The 51 members of Citigroup Inc.’s senior leadership committee got an average of $4 million each, according to Cuomo.

The report underlines “why we’re trying to pass this bill,” House Financial Services Committee Chairman Barney Frank said yesterday in an interview. “This is precisely the kind of thing that should be subject to legal restriction.”

Tougher to Stampede

The House measure goes further than administration proposals to regulate compensation. It bars incentive-pay plans that “could threaten the safety and soundness of covered financial institutions,” or that “could have serious adverse effects on economic conditions or financial stability.”

The Senate wouldn’t take up the measure until it returns from its recess, which begins Aug. 10 and ends Sept. 7.

“History teaches us that it is a lot tougher to stampede the Senate than the House,” said John Olson, a partner at the Gibson, Dunn & Crutcher law firm in Washington. “If Mr. Cuomo was playing federal politics and trying to influence the Senate, he would have released this report after Labor Day.”

Bovespa is in wave 5 up and should exhaust around 57000 within the next 2-4 weeks before a severe correction should drag the market down to 42-44000 at least. we will see in Q1 2010 how the downmoves are developing and make an update accordingly. Get the hell out around 57000 and build up shorts.

The XU100 has reached the target zone around 40-42000 and has a potential left up to 43000. A severe correction is due starting in 1-3 weeks. The downside potential is big as at least 33000 is likely. In pure wave terms we should see a wave 4 down starting earliest next week. We are in week 13 Combo count which we get now in many indices like the NDX at 12 this week. We have reached exhaustion level in a fabricated rally without any fundamental backing. Get out of longs and start building up short positions. Emerging markets are at a higher risk as they have performed far better.

Believe nothing, no matter where you read it, or who said it, no matter if I have said it, unless it agrees with your own reason and your own common sense.BUDDHA

1.To the jobless numbers -I hope you know that the declining part derives from the fact that people are thrown out not because they found a job

2. To the GDP it contains a lot of proprietary elements which means the government can fabricate the biggest part to their will what they do for 20 years now by decreasing inflation and blowing up the GDP - both are big fat lies.

Jobless Claims Showing Unemployment Trending DownThe number of U.S. workers filing new claims for unemployment benefits rose slightly more than expected last week, but the number of workers staying on jobless roles fell to the lowest in three months, government data showed on Thursday.

Initial claims for state unemployment insurance benefits rose 25,000 to a seasonally adjusted 584,000 in the week ended July 25, the Labor Department said, a touch above market expectations for a reading of 570,000.

However, the four-week moving average for new claims, considered to be a better gauge of underlying trends as it irons out week-to-week volatility, fell by 8,250 to 559,000.

excerpt 2

GDP Is Expected to Fall Again, But 'The Nosedive Is Over'

Friday's GDP report is expected to show the economy shrank further in the second quarter, but many economists believe the data will also signal that the recession has finally hit bottom.

AP

"The nosedive is over," says economist David Jones of DMJAdvisors. "Nevertheless, you come out of this looking past the second quarter with a very uneven recovery picture."

The consensus forecast is that the GDP report will show the economy contracted at a 1.5 percent annual rate in the April-to-June period. That preliminary number will be updated twice in the coming weeks.

Thursday, July 30, 2009

The pressure on Goldman keeps rising but I am afraid that they have to much influence in current DC to be taken to justice. Now even the Treasury takes it on itself to make undeserved presents to them as the warrants Goldman bought back from them were deeply undervalued as I stated in an earlier post.

The Democratic party is completely in their hands with the leading members of both houses finance committee's working for them very obviously from Schumer to Frank they have no problems to fear. President Obama seems to be in sink with the whole picture as his first step if he were any serious with this issue would be a full fledged investigation in the dealings of Paulson and Bernanke not only with the Merrill deal but more so with the JP Morgan / Bear and Lehman situations up to the obvious fraud with AIG.

Obama is so reluctant that he even declared yesterday the recession as finished with his in depth economic expertise (including all his advisers) who do not know squad or are just a bunch of liars not that any of the Bush guys was any better since they all work for the same master.

Wednesday, July 29, 2009

The NDX has reached the target area and with a time lag the SPX will follow but we might start to develope an intermarket divergence as some markets will top out earlier which is a classic for severe troughs and tops. As one of my favorite long was China months ago and has reached the target area fully. We have about 2 weeks left for the NDX but as also the BTK has made the upside move now there is nothing really left to go up for the medium term. The 50% retracement level can be reached though at 1630 with the 200 week MA at 1695 which is not an option. The longs have to put on their pampers since it will be a wild ride starting next week after we had the full moon in Aquarius ( technology) and matches a 13 count in weekly Combo terms.

Tuesday, July 28, 2009

It is getting more and more obvious for whom this guy works. Frank is trying to sell us the naked emperor again as he is clearly a Goldman (Rockefeller) lobbyist. Especially the actions in the so called good times were the reason for the bad times and the banker made a killing in the good times and taxpayers still pay them in the bad ones.

That whole charade with this corrupt DC politicians gets beyond anything bearable. it is perfectly ok that he is a gay Jewish chairman of the banking committee if he would perform well. Although it starts to make me uncomfy to see that in all crucial posts are covered by Jews, does not make any sense to me FED Chairman, WORLDBANK, IMF presidents to the leading members of all Finance Committee's are solely in Jewish hands - that's a weird coincidence - but could be alright if we would not have such a severe financial crises. Bottom line is they do not make their job or is it that have a hidden agenda? With his lover at Fannie Mae, Frank was responsible for many of today's problems as he stopped necessary reforms at Fannie and Freddie.

Frank is a part of the problem and will never be part of the solution which is evident by this legislation for the people to create a law which will never have any effect on the systematic problems that Wallstreet can screw taxpayers again.

I know people will come up with this pathetic conspiracy theory stuff and antisemit nonsense - well first of all conspiracy is not a theory its a substantial factor of all times in all forms of societies and right now some Jewish families have gathered a lot of power which is a fact and some even admit it themselves like Rockefeller's.

This antisemit phrase is a very clever invention are we antiitalian because we know that there is the Mafia or are we antigerman because we clearly can admit that there were/are some Nazi's - and as a matter of fact that Frank got such a post after all those scandals shows how rotten DC in general is also true for catholics or black baptists - corruption does not know colour or religion.

This stockholder stuff sounds nice right? - but actually is a big fat dirty trick!! For a simple reason the big majority of all stockholder voting rights are with mutual funds who run the 401 or the stock funds approx. 80% are controlled by Wallstreethimself. Wallstreet will vote for their own interests - that's the most stupid thing one can imagine what this politicians are pulling off here. Obama is now in office for 5 months and no doubt is left anymore for whose interest he works but any other candidate would have made no difference ( do not have any illusions about that) - they choose him because he is the ideal candidate to cover up all the stuff they are doing now.

Excerpt 1

Conservative groups criticized Frank for campaign contributions totaling $42,350 between 1989 and 2008. They claim the donations from Fannie and Freddie influenced his support of their lending programs, and say that Frank did not play a strong enough role in reforming the institutions in the years leading up to the Economic crisis of 2008.[51][52] Frank's former partner, Herb Moses, was an executive at Fannie from 1991 to 1998, where Moses helped develop many of Fannie’s housing and home improvement lending programs. In 1991, Frank pushed for reduced restrictions on two- and three-family home mortgages. During the time that Frank was in a relationship with Moses, he blocked tougher regulations on the banking companies while voting for the Government Sponsored Housing Enterprises Financial Safety and Soundness Act of 1991 and the Housing and Community Development Act of 1992.[53]Frank and Moses' relationship ended around the same timeMoses left the company.

Excerpt 2 (that was quite stupid as the Washington Post belongs to the Rockefeller gang)

A 1990 investigation by the House Ethics Committee was prompted by Steve Gobie, a male hustler Frank befriended and housed, who attempted to profit on his allegations that Frank knew he was using the home to see clients. Frank confirmed that he had once paid Gobie for sex, hired him with personal funds as an aide and wrote letters on congressional stationery on his behalf to Virginiaprobation officials, but Frank said he fired Gobie when he learned that prostitution clients were visiting his apartment.[16] "Two years [after Frank fired Gobie], Gobie tried unsuccessfully to sell his story to the Washington Post. He then gave the story to the Washington Times for nothing, in hopes of getting a book contract for the male version of Mayflower Madam."[17] After the investigation, the Committee found no evidence that Frank had known of or been involved in the alleged illegal activity and dismissed all of Gobie's more scandalous claims; they recommended a reprimand for Frank using his congressional office to fix 33 of Gobie's parking tickets.[18][19] Attempts to expel or censure Frank, led by Republican member Larry Craig - who later was embroiled in his own gaysex scandal - failed.[20][21]Instead the House voted 408-18 to reprimand Frank who later won re-electionin 1990 with 66 percent of the vote, and has won by larger margins ever since.

Excerpt 3

By Alison Vekshin and Peter Cook

July 28 (Bloomberg) -- House Financial Services Committee Chairman Barney Frank said his legislation aimed at reining in pay incentives that lead executives to take excessive risks will probably reduce compensation “in bad times.”

“What it will mean is that the compensation is more likely to track the broad outlines in the economy,” Frank, a Massachusetts Democrat, said today in an interview with Bloomberg Television in Washington.

Frank’s panel is considering the legislation today and may vote on changes that would let shareowners hold non-binding votes on executive pay and direct regulators to write rules that will limit incentives that encourage excessive risk-taking.

Shareholders will help determine the compensation at their company, Frank said. “What we’re saying is however you pay the overall amount, don’t have a system that makes you take excessive risk,” Frank said.

The pay measure is part of an effort in Congress to overhaul rules that regulate Wall Street. Broad support has emerged for a regulator to monitor companies that pose a systemic risk to the economy, Frank said. Lawmakers are backing away from the Obama administration’s proposal to give such authority to the Federal Reserve, Frank said.

“There’s going to be some combination of existing regulators working together,” he said.

Well it is not so hard to figure out in the last year banks have reduced credits in big scale althoıughnthey got all the taxpayer money and zero credits. The credit crunch no one of the barbie talking heads mentions is as severe as it gets and that is the only significance when it comes if the economy found any bottom - there is no such a thing. Just meaningless propaganda by Bloomberg / CNBC and all the other members of the propaganda machine.

Excerpt

The Florida CRE Implosion Visualized

Submitted by Tyler Durden on Tue, 07/28/2009 - 00:13

A reader submits the following photo essay on the absolute commercial real estate carnage in Florida. Has to be seen to be believed: you will not see these pictures anywhere in traditional media.

He also provides the following color:

I took a drive this evening from 5.30 pm - 7.30 pm and shot over 200 pictures of Florida real estate in crisis. What is really amazing if you notice the time and date on each picture . I was able to shoot a picture about every 45 seconds while all alone driving in traffic including stopping for traffic lights and gas and parking in a safe place each time for each shot . Everywhere you turn something is for lease or rent.

All these headlines in the media dont seem to have any effect on people so here is one road in one town ( out of thousands ) in Fort Lauderdale Florida up to Pompano Beach ( about 8 miles ) I pretty much only shot the right side of the street because I did not want to do any u turns . Some pics I shot across the street . This does not even include office buildings .

There is something for lease or rent in almost every single plaza or strip mall without exception . I also missed a lot more because of traffic and buildings set back from the street. This does not even include offices , homes , condos etc, this is just stuff abandoned or had a sign in front of it and I missed a LOT of signs . This is not even all the empty lots that sit because the developer abandoned the project after buying up the whole neighborhood .

This is Fort Lauderdale Florida . The Gold Coast , The Venice of America the Yachting capital of the world folks.The pictures start at the Fort lauderdale beach on Sunrise Blvd. and go west to federal Highway ( rte 1 ) north to Pompano Beach about 8 miles and finish in a random warehouse district off the main road . After that it got dark and I had to stop .

You will see Exotic car dealerships Burger King, Wendys , Fuddruckers , Hooters , Pier one , furniture stores , restaurants , clubs boat dealers, Business that have been there 20 + years , Supermarkets , Saks 5th avenue ( big white building in beginning ) Macks groves , Flaming Pit , the old 50's diner . A Ford dealer and a Dodge dealer . A golf course in beginning of slideshow . All GONE in just one 8 mile strip . Folks this is the good side of town with the money I did not even go to the other side of the tracks or to other streets just one !!!

Monday, July 27, 2009

A bank is a place that will lend you money if you can prove you don't need it.Bob Hope

I sincerely believe that banking establishments are more dangerous than standing armies, and that the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale.Thomas Jefferson

It is easier to rob by setting up a bank than by holding up a bank clerk.Bertolt Brecht

A banker is a fellow who lends his umbrella when the sun is shining and wants it back the minute it begins to rain.Mark Twain

Well I hope you had that in mind as you use all the facebook, twitter, google and Microsoft stuff. They are perfect to create profiles and that is what they are used for!

Before Vista was released it went to the NSA for program additions - what do you think the purpose was ?

I am using an Antivirus system which I am sure enables the FSB (KGB) to read my data which the CIA and others are doing anyway.

Lets be clear and drop all naivety - we have fully deployed the Orwell scenario and as we saw by the recent action of Amazon who just erased all Kindle electronic Orwell books bought withoutıt asking we are fully dependent on their goodwill.

Consumers have no protection all efforts to create the illusion that we do are just pathetic attempts to create an illusion of security but 9/11 was a fabricated incident to strip away the final rights of citizens. The force behind all this were not terrorists - terrorists are used to accomplish tasks for the forces (Rockefeller / Rothschild) who want to rule this planet and to some degree they do. Rothschild controls Europe and Rockefeller America like to big mobster families and they own and control those governments through many angles. That why their biggest investments banks and oil can basically do whatever they want.

How Wired Gadgets Encroach on Privacy

With every high-tech gadget we buy, we give up a little more privacy. Many devices today are in constant communication with their manufacturer. And it's not just consumers who are losing their rights -- the technology gives authoritarian states whole new ways of keeping tabs on individuals.

Don't look now, but no matter where you go, you're connected. We -- or most of us, at least -- have opened our front doors to large corporations, hardware manufacturers, software firms and search engines. We have allowed them to rifle through our jacket pockets and handbags. And now they can do as they wish with us, or do the bidding of the powers-that-be -- in the form of a totalitarian government, for example.

The recent substantial upgrades of analysts for earnings is ironically a typical signal that we are close to a top. Even Goldman who was one of the most bearish at the bottom has raised its 2010 earrings for the SPX to 72 with 70 being the average call these days. They get paid very good for making in average bad calls that'sanother cynical truth about Wallstreet.By all means there is no way that earnings can surge as we are in the twilight zone where the strongest part in the chain squeezes the weaker ones namely his suppliers to lower prices. The real economy is not within the biggest stocks but in tier 2 and 3 companies who supply them they produce around 2rd of the GDP and employ the real critical mass of people. The better bottom line earnings we see now are a clear sign of that effect since the topline is in average weaker as thought and all is negative still.We still are in a credit crunch only banks get the benefit of lower rates and have even reduced credit drastically, all over participants get less credit for higher rates. The economy has no other positive input than a temporary stimulus which keeps the patient alive but does not cure his disease. The most basic things are not done at all the system is not cleared from the cancer actually the government lets the cancer grow again as banks get free money to screwMainstreet even more that's the very cynical status quo.

The foreseeable astrological effect that made this wave of euphoria possible will be gone in a few weeks and replaced by quite ugly patterns - so do not get carried away as we saw this events coming the positive ones right now as the ones which will shatter all optimism in a few weeks and bring reality back on track. Use the SPX over or at 1000 to get rid of your stock holdings as you will be able to buy them far cheaper in 6-9 months. Just use your common sense to see the picture we had in the 2000- 2003 bear market the same price magnitude and now things are far worse as just to give one example the jobless effect is almost double of what we had back then.

You may want to read the weekend thoughts of John Mauldin in the link below

http://zerohedge.blogspot.com/

Excerpt from Bloomberg

Surging Profit Estimates Signal 26% Rally for S&P 500

July 27 (Bloomberg) -- Analysts are raising U.S. profit estimates for the first time since credit markets froze two years ago, reducing valuations even after the steepest rally since the Great Depression.

Wall Street firms raised forecasts on Standard & Poor’s 500 Index companies 896 times in June and lowered 886, according to data compiled by JPMorgan Chase & Co. The last time analysts were bullish on a net basis was in April 2007, before more than $1.5 trillion of bank losses tied to subprime loans spurred the first global recession since World War II, the data show.

The failure to anticipate Goldman Sachs Group Inc.’s record second-quarter profits or Freeport-McMoRan Copper & Gold Inc.’s tripling of bullion sales forced analysts to boost 2010 projections. Wall Street firms estimate the S&P 500 will earn $74.55 a share next year, up from $72.54 in May. Stocks now trade at 13.13 times estimated profit, indicating a 26 percent increase in the S&P 500 should the index return to its five- decade average of 16.54 times annual income.

“There’s a sea change of opinion and it all goes back to the improving economic data,” said Fritz Meyer, the Denver- based senior market strategist for Invesco Aim, which oversees $348 billion. “Expectations got pushed too low in the depths of the recessionary mentality. That translates into upward revisions in earnings estimates and drives stock prices.”

Earnings Revisions

Analysts lowered profit forecasts at a record pace after the failure of Lehman Brothers Holdings Inc. in September caused overnight borrowing costs for banks to hit an all-time high of 6.88 percent, tipped the U.S. economy into the worst recession in half a century and sent the S&P 500 to a 38 percent decline, the biggest annual retreat since 1937.

Four out of five of the 4,716 earnings revisions in October were decreases, the most ever, JPMorgan data show. Analysts have raised estimates amid growing signs that the global economy has bottomed.

The turnaround in June from October was the biggest since the JPMorgan data started in 2000. The second-largest swing was in October 2002, the beginning of a five-year bull market that doubled the value of U.S. equities.

Futures on the S&P 500 rose 0.2 percent as of 2:18 a.m. New York time. The gauge rose 4.1 percent to 979.26 last week and has rallied 45 percent since falling to a 12-year low on March 9, pushing its price-earnings ratio to 13.13 based on 2010 estimates. The measure would have to rise to 1,233.06 for the multiple to equal its historic average since 1959, according to data compiled by Bloomberg.

‘Quick Snapshot’

The estimates indicate S&P 500 corporate earnings will rise 25 percent from this year’s projected $59.80 a share, which would be the biggest increase since 1995, the data show.

Revisions are a “really quick snapshot of whether people are becoming more or less optimistic,” said Jack Caffrey, an equity strategist at JPMorgan Private Bank, which oversees $380 billion in New York. “We expect the world to get better, so we wouldn’t be surprised to see stocks move higher.”

Second-quarter earnings announcements indicate analysts may need to change even faster. Of the 204 companies in the S&P 500 that have reported results, 75 percent have beaten consensus estimates, data compiled by Bloomberg show. No more than 72.3 percent have ever beaten analysts’ estimates for a full quarter since at least 1993, the data show.

Equity analysts remained too bullish last year as the economy shrank 6.3 percent in the fourth quarter and 5.5 percent in the first three months of 2009, the biggest six-month contraction since 1958.

Cost Cuts

Forecasters predicted fourth-quarter profit would fall 19.7 percent on Jan. 9, according to consensus estimates compiled three days before the earnings season began. Instead, earnings plummeted 61 percent, the biggest decline since at least 1998, according to data compiled by Bloomberg.

Analysts are being deceived by second-quarter results that were boosted by cost reductions, according to Christopher Sheldon, the Boston-based director of investment strategy at BNY Mellon Wealth Management, which oversees $142 billion globally. Only half of the S&P 500 companies that reported exceeded forecasts for sales, data compiled by Bloomberg show.

“When you look at bottom-up estimates, we would say that’s going to be dependent on a lot of things continuing to go right,” Sheldon said. “As we’ve moved away from the worst-case scenario, people have embraced this idea of a V-shaped recovery, and to us that’s a challenge.”

Invesco Aim’s Meyer says it is “perfectly reasonable” for stocks to rise as much as 25 percent through next year because the economic recovery will boost profits.

‘Grow Into Sequoias’

Economists doubled projections for third-quarter economic growth to 1 percent in July from 0.5 percent in June, according to a Bloomberg survey of 57 analysts this month.

Thursday, July 23, 2009

The target is reached 1580-1600 but it will not be the final one. For now we may have got to the tricky level though as big tops are always made in a manner that screws the bears after tricking them in. We should see a correction from these levels mostly next week as this weeks Solar eclipse was far to strong and Goldman fabricated together with JP Morgan and as i,t becomes clearer also Credit Suisse a perfect short squeeze scenario which started with the brake away lap of Intel last week. Furthermore we shall see a intermarket divergence as one of the leading sectors of the early stage is a total under performer for good reason the banks. The 200 points up should be followed now by a 50 even 80 points correction before another wave comes and the SPX may be the one leading in the final stage of August as we will go above 1000.

Buffett invested half of the amount at a higher price and is declared to have a paper profit of 2 bil. how can the Treasury get for double the amount invested at a better price get 1.1 bil. - there are obviously some obscure things going on and it smells like fraud. The amount the taxpayer made on this deal should be at least 4 bil hence we have missing 2.9 bil dollars which Goldman paid below the market value that is not tolerable and needs to be investigated in full scale matter and needs to be made public. Also in relative terms Buffett made 40% and the taxpayer 23% that makes no sense and must be a scam.

Berkshire Profit on Goldman Sachs Passes $2 Billion (Update2)

By Erik Holm

July 23 (Bloomberg) -- Warren Buffett’s option to buy shares of Goldman Sachs Group Inc., part of an agreement reached at the depths of the credit crisis, has earned a profit on paper of about $2 billion, a return of more than 40 percent.

Goldman Sachs today passed $162 in New York trading for the first time since rival Lehman Brothers Holdings Inc. collapsed in September. Buffett’s Omaha, Nebraska-based Berkshire Hathaway Inc. has warrants to buy $5 billion of Goldman common stock for $115 a share any time in the next four years.

“It must feel good to be Warren Buffett,” said Gerald Martin, a finance professor at American University’s Kogod School of Business in Washington, who has studied the billionaire’s investing history. “That number just flies in the face of people who like to say he’s lost a step.”

The difference between the strike price and the share value translates into a $2.11 billion paper profit for Berkshire. The U.S. government got a 23 percent annualized return for its investment in the firm after an agreement yesterday by the bank to repay $1.1 billion to settle warrants.

Goldman Sachs turned to Buffett in September, agreeing to sell $5 billion in preferred shares paying 10 percent interest, after Lehman’s bankruptcy and the emergency takeover of Merrill Lynch & Co. by Bank of America Corp. Amid the crisis, Goldman earned an explicit endorsement from Buffett, the so-called Oracle of Omaha who is celebrated for his investing savvy.

Berkshire gained $790, or 0.9 percent, to $92,790 at 1:07 p.m. in New York Stock Exchange composite trading. The company has slipped about 3.9 percent this year as Berkshire posted a first-quarter loss on declines in the value of holdings in ConocoPhillips and derivatives tied to corporate bonds.

‘Economic Pearl Harbor’

The Goldman Sachs warrants, Buffett said, were tacked on to give him an incentive to sell some of Berkshire’s existing stock holdings to fund the deal at a time when he had an increasing number of investment opportunities as the economy froze and markets plummeted.

“I wouldn’t have done the deal without them throwing in the warrants,” Buffett said in a Bloomberg Television interview in March. “That was a time when I talked about an economic Pearl Harbor right at that point. So to part with the funds at that time, I not only wanted a good yield but I wanted a possible kicker.”

The 40 percent return is based on the gain if Buffett were to redeem the warrants and sell them at today’s price. Berkshire also gets $500 million in interest on the preferred shares annually.

Government Repaid

Goldman Sachs later took $10 billion from the U.S. as part of the government’s bailout of financial firms -- a deal that also required the bank to grant the Treasury warrants. The U.S. Troubled Asset Relief Program charged 5 percent annually, and placed restrictions on compensation for some employees. Goldman repaid the $10 billion in June, and this week agreed to the Treasury’s request for $1.1 billion to settle the warrants.

Buffett’s deal requires the firm to pay Berkshire a 10 percent fee if it repays the preferred shares before 2013.

“It makes sense, in a way,” said Martin of the Goldman Sachs decision to repay the U.S. funds first. “Who would you rather have breathing down your neck at a shareholder meeting, the government or Warren Buffett? An investment from Buffett reflects well on your company, and taking that government money was always a negative.”

Goldman Sachs Pays $1.1 Billion to Redeem TARP Warrants

As I do not have the parameters I can not do a real calculation but by any means that deal stinks again!

1.Buffett bought 5 bil worth of preferred shares with a warrant of Goldman at a far higher stock price and I assume strike price.

2. The Treasury gave double the amount for TARP into a preferred with warrants deal at a far lower stock / strike price.

Recently the media reported that Buffett made a few billions on that deal and The Treasury gets 1.1 bil - that does not make any sense. Again Goldman gets multi billion present from taxpayers!!!

That has to be reversed and this Goldman puppet Geithner needs to be fired - that guy stinks.

and its outrageous how it is sold to the public - Mr President those deals eat away your credibility.

Excerpt

US Taxpayers Make 23 Percent Return

NEW YORK--(BUSINESS WIRE)--July 22, 2009--

The Goldman Sachs Group, Inc. (NYSE: GS) announced today that it has redeemed the warrants the U.S. government received in connection with its investment in the firm through the TARP's Capital Purchase Program at $1.1 billion, the full value the U.S. Treasury Department has determined.

While there are a number of ways to value the warrants, including through a public auction, we believe that in the context of the extraordinary actions taken by the government to help stabilize the financial system, this valuation of the warrants represents full and fair value.

In June, Goldman Sachs repaid the U.S. Treasury's investment of $10 billion, and during the eight months of the investment, the firm paid $318 million in preferred dividends. We are pleased that the payment of the dividends and the redemption of the warrants, which total $1.418 billion, represent an annualized return of 23 percent for US taxpayers.

"This return is reflective of the government's assistance, which benefitted the financial system, our firm and our shareholders," said Lloyd C. Blankfein, Chairman and CEO. "We are grateful for the government efforts and are pleased that this additional money can be used by the government to revitalize the economy, a priority in which we all have a common stake."

He added, "Because Goldman Sachs advises companies with their growth plans and raises capital to support that growth, the best and most sustainable operating environment for us is one where consumer and business confidence and economic growth flourish. We are committed to allocating capital and providing liquidity to our clients to help stimulate growth and job creation."

The Goldman Sachs Group, Inc. is a leading global financial services firm providing investment banking, securities and investment management services to a substantial and diversified client base that includes corporations, financial institutions, governments and high-net-worth individuals. Founded in 1869, the firm is headquartered in New York and maintains offices in London, Frankfurt, Tokyo, Hong Kong and other major financial centers around the world.

Wednesday, July 22, 2009

Our laws make law impossible; our liberties destroy all freedom; our property is organized robbery; our morality an impudent hypocrisy; our wisdom is administered by inexperienced or mal-experienced dupes; our power wielded by cowards and weaklings; and our honour false in all its points. I am an enemy of the existing order for good reasons. - George Bernard Shaw

The world is a dangerous place to live - not because of the people who are evil but because of the people who don't do anything about it.

As expected another test of the 1.43 area and we even should make a slightly new high within the next days before turning down. It will be interesting to see how close the correlation is to stocks as they need another 3-4 weeks at least to finish the tops the EUR will not exceed the strong 1.44/5 barrier before a sharp downmove will start with a 1.20 target. The FED has redrawn all currency swaps it gave out to foreign central banks limiting the exposure of forced buying. We can expect aa short term pullback which we also should see from stocks but stocks will make new highs which I doubt the Euro will make as it also did not make new lows in March.

Bernanke claimed yesterday that the FED did a good job - that guy got some guts claiming such an obviously wrong fact. putting interest rates to zero and printing money can be done by any monkey.To see the crisis coming was his job he totally failed on is one option - the even uglier version would be he saw it coming but misled the public by claiming everything was contained. Either case is a 100 % failure.The other obvious facts are his pathetic attempts to hide the truth as he was asked how big the losses are of the AIG and Bear positions he claimed to have no idea just a few billions - that alone is a reason to fire him as he should know on a weekly basis how big the losses are.Furthermore he claimed that they make money on the other exposure they had which is also a lie as the biggest position he runs is to lend money at 0 (zero) to banks in trillions which is a negative interest rate and losses money on a daily basis.

Its amazing how much people can get away like Paulson and bernanke being responsible for hundreds of billions of losses but when a commoner just parks at the wrong spot they are allover you. The system stinks from all angles but the worst is they are preparing the ground for things to get even worse contrary to what they are claiming.

Still they want more power which is orchestrated by Summers from the background before he takes over and can blame everything on Bernanke once he has gathered the empowered new FED chairman post.

Excerpt

Bernanke Heads Back to Capitol Hill and More Questions

Federal Reserve Chairman Ben Bernanke heads back to Capitol Hill Wednesday, where he's likely to face more tough questions about the central bank's extraordinary actions to rescue the economy and its ability to take on even more responsibility.

Last year's taxpayer-financed rescues of insurance giant American International Group and others have touched a nerve with the public and some lawmakers.

(Watch Bernanke Live on CNBC.com starting at 1O am EST)

Although Bernanke's innovative policies have been credited with averting a financial catastrophe last year, critics worry about putting taxpayers' money at risk and creating a situation where companies may feel more inclined to take big gambles on the belief that the government will clean up their messes.

Bernanke, who is slated to appear before the Senate Banking Committee at 10 a.m. EDT, argues that a collapse of AIG[AIG13.32---UNCH(0)] would have put the entire financial system and the broader economy in peril.

Provisions included in the Obama administration plan to overhaul financial oversight, if they were to become law, would avoid a repeat of additional AIG-like taxpayer bailouts, says Bernanke.

The Fed chief also is likely to run into fresh skepticism from senators wary of expanding the Fed's duties to police big financial companies as envisioned by the administration. Some members of the House Financial Services Committee on Tuesday argued that the Fed failed to spot problems that led to the financial crisis in the first place.

Bernanke countered that the administration's proposal would be a "modest reorientation" of the Fed's powers, not a great expansion of them.

Its amazing how easy things are to figure out these days - as I wrote earlier the only real positive suprise could be expected from Goldman and JP Morgan as they work together in a pool to manipulate the markets up and Morgan Stanley is not part of it. MS started to warn their investors around 800 SPX and even were bearish that is why they did not make any money not because of TARP since that was also repaid by Goldman. The average trader at MS is as smart as the ones from Goldman the difference lies in the owner structure as Morgan is run by Arab management the other 2 are clearly in Jewish hand and far more important belong to the Rockefeller / Rothschild gang. How can you beat Goldman when the FED,Treasury and NYSE is in their hand - they will always be ahead of the breed with their own secret service at all crucial spots ( Worldbank and IMF also work for or with them). After all the poor result proves the market manipulation from a different angle and also shows how overrated all this mangers are at Wallstreet as we also can see with Citi which is run bbyPandit who was also a candidate tu run MS - both use those jobs anyway to fill their own pockets as Mack the current CEO of MS was supporting Clinton to get the next Treasury secretary for the same reason which motivated Paulson to take the post. As I have written in earlier posts a law allows the Secretary to sell all his stocks without any taxation to exclude any conflicts of interest. Which is very ironic as Paulson saved or made about 200 mil through that and still kept working for Goldman's interest.

Excerpt

Morgan Stanley Quarterly Loss Misses Estimates on Debt Costs

By Christine Harper

July 22 (Bloomberg) -- Morgan Stanley reported a third straight quarterly loss, worse than analysts estimated, as costs to repay the U.S. government and charges from an improvement in the firm’s own debt overwhelmed revenue.

The second-quarter loss from continuing operations was $159 million, or $1.37 a share, compared with earnings of $689 million, or 61 cents, in the same period a year earlier, the New York-based company said today in a statement. The average estimate of 19 analysts surveyed by Bloomberg was for a 54-cent loss. The results include a $2.3 billion accounting charge related to an improvement in the firm’s own debt.

Chief Executive Officer John Mack raised $6.9 billion by selling stock in the quarter, paid $10 billion and an $850 million dividend to the U.S. government, and took control of Citigroup Inc.’s Smith Barney brokerage division. The firm failed to make a profit, even as rising stock and bond markets during the quarter fueled profits at competitors, including record earnings of $3.4 billion at Goldman Sachs Group Inc.

“If there was ever a time when these banks should exceed on the upside in terms of their results, it should be now,” said Matt McCormick, a banking-industry specialist at Bahl & Gaynor Inc. in Cincinnati, which manages $2.3 billion, before the results. “Like it or not, many people are comparing them to the banks that came out with strong results and saying, ‘Why can’t they be more like Goldman?’”

Morgan Stanley shares have climbed 72 percent this year to close yesterday at $27.56 in New York trading after the stock plunged 70 percent in 2008. In two stock offerings in May and June, the company increased the number of shares outstanding to 1.4 billion from 1.1 billion at the end of March.

Bond Spreads

The difference between the yield on Morgan Stanley’s bonds and U.S. Treasuries, known as the spread, has narrowed in 2009 as investors became more comfortable lending to the company. The spread on $4.5 billion of 6.625 percent senior unsecured bonds that mature in 2018 dropped to 209 basis points yesterday from 465 basis points at the end of March. A basis point is one- hundredth of a percentage point.

Goldman Sachs and Morgan Stanley were the two biggest U.S. securities firms before converting to banks in September, furnishing them with the protection of the Federal Reserve in the wake of Lehman Brothers Holdings Inc.’s bankruptcy. Both firms changed their fiscal years to end in December instead of November.

While Goldman Sachs CEO Lloyd Blankfein, 54, has stuck to a strategy of making trading bets and investments with the firm’s own money, Mack, 64, has reduced Morgan Stanley’s risk-taking, scaling back principal investing and proprietary trading. Goldman Sachs reported record second-quarter revenue and earnings, driven by trading and stock underwriting revenue at an all-time high.

Robert Hoornweg

Earlier this week Morgan Stanley replaced Robert Hoornweg, 41, as global head of interest rates, credit and currencies with Jack DiMaio, 42, a former Credit Suisse Group AG executive who had founded a hedge fund.

Morgan Stanley paid $2.75 billion in cash during the quarter to complete its joint venture with Citigroup’s Smith Barney at the end of May. The deal gives Morgan Stanley control of a new Morgan Stanley Smith Barney brokerage division, which had about 18,500 advisers on June 1.